The GO bonds are payable from an unlimited ad valorem tax pledge of all
taxable property in the district.

KEY RATING DRIVERS

STRONG FINANCIAL POSITION: The 'AA+' rating reflects the district's
strong financial position, with a solid financial cushion and prudent
management practices. Fitch expects the district to spend down some fund
balance in future years, but to maintain reserves at satisfactory levels
for its risk profile.

STRONG LOCAL ECONOMY: The district benefits from its proximity to the
Orange and Los Angeles County employment markets. Socioeconomic
indicators are above average.

MANAGEABLE LONG-TERM LIABILITIES: Overall debt levels are low, although
expected to rise with a new bond authorization. Carrying costs are
affordable but growing, given future debt plans and expected increases
in pension contributions.

GOOD FINANCIAL OVERSIGHT FRAMEWORK: Like all school districts in
California, the district is subject to extensive financial reporting and
oversight provisions, per state law, which Fitch views positively.

RATING SENSITIVITIES

STRONG FINANCIAL MANAGEMENT: The rating is sensitive to shifts in the
district's strong financial performance and solid reserve levels. The
Stable Outlook reflects Fitch's expectation that such shifts are highly
unlikely over the coming review cycle.

CREDIT PROFILE

The district serves about 15,000 high school students primarily in
northern Orange County (Fitch implied GO rating of 'AA+', Stable
Outlook).

RETURN TO STRUCTURAL BALANCE

After drawing down reserves in fiscal 2011 - 2013, the district regained
structural balance in fiscal 2014 and 2015 due in part to negotiated
labor concessions (furloughs and increased class sizes) as well as to an
improving funding environment for California school districts.

The labor contracts included re-openers based on actual revenues, and
given improved Proposition 98 funding the district was able to add back
the furlough days and return to the previous class sizes over the
two-year contract period that expires in June 2015.

The district ended fiscal 2014 with a modest operating deficit
($827,000) and a solid unrestricted general fund balance of $28.1
million, equal to about 20.5% of spending. The district's unaudited
actuals for fiscal 2015 show a $3.6 million operating surplus,
increasing available reserves to about 25% of fiscal 2015 spending.

The district and employees are in contract negotiations for fiscal 2016.
After seven years of no salary increases, Fitch expects pent-up wage
pressure may result in some salary increase. Despite this pressure, and
in light of its history of prudent financial management, Fitch expects
the district to retain solid reserves and largely balanced operations.

STRONG LOCAL ECONOMY

The district benefits from a fundamentally sound local economy that is
linked to the diverse regional economies of Orange County and the
greater Los Angeles area. The city of Fullerton (the city) is home to a
university, medical centers, and large businesses specializing in
defense, aerospace, and engineering. Taxable assessed value (AV)
experienced only moderate declines during the recent recession, and
growth has since resumed - increasing 6.2% for fiscal 2015 to $28.8
billion (about 9% above its pre-downturn peak).

Socioeconomics are generally above average. Median household income in
2013 was 110% and 127% of state and national averages, respectively.
City unemployment was down to 5.3% in July 2015, which is lower than
state and national unemployment levels. City labor force growth for the
12 months ending July 2015 was solidly above the state and national
rates of growth.

MANAGEABLE LONG TERM LIABILITIES

Overall debt levels are low at about $1,300 per capita and 1.1% of AV.
Amortization is moderately slow, with roughly 40% of principal retired
in 10 years. The district received voter authorization for up to $175
million in GO bonds in November 2014 to address all of its identified
capital needs. These bonds are the first issuance of the authorization
which the district plans to issue over the next six years. Fitch does
not expect planned issuance to materially impact its debt profile.

The district participates in California Public Employees' Retirement
System (CalPERS), as well as the more poorly funded California State
Teachers' Retirement System (CalSTRS). In fiscal 2015, the state
implemented a multi-year pension contribution rate hike that would more
than double current CalSTRS rates through fiscal 2021. Contributions to
CalPERS are expected to increase by 50% over the next five years. Fitch
expects these increased contributions to generate moderate but
manageable budgetary pressure on the district.

Total carrying costs, calculated by dividing debt service, pension, and
other post-employment benefits (OPEB) costs by governmental fund
spending, equal a relatively low 9% in fiscal 2014. However, Fitch
expects total carrying costs to rise to more moderate levels given
future growth in pension costs and debt service.

Fitch recently published an exposure draft of state and local government
tax-supported criteria (Exposure Draft: U.S. Tax-Supported Rating
Criteria, dated Sept. 10, 2015). The draft includes a number of proposed
revisions to existing criteria. If applied in the proposed form, Fitch
estimates the revised criteria would result in changes to fewer than 10%
of existing tax-supported ratings. Fitch expects that final criteria
will be approved and published by Jan. 20, 2016. Once approved, the
criteria will be applied immediately to any new issue and surveillance
rating review. Fitch anticipates the criteria to be applied to all
ratings that fall under the criteria within a 12-month period from the
final approval date.

In addition to the sources of information identified in Fitch's
Tax-Supported Rating Criteria, this action was additionally informed by
information from Creditscope.

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